Hi,
The typical poster here will likely be sitting on a hard earned pile of cash.
Lawyers are everywhere as are their potential clients that want your money.
Say you make a mistake behind the wheel, or you (after a life of responsible behavior) get in a fist fight. Someone gets hurt or fakes being hurt.

Insurance is certainly a form of protection, but is it enough? How about trusts?

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My plan is to get an umbrella policy on net worth minus already covered assets, with a buffer. Eg if there is a homestead exemption in your state, it will cover a certain amount, and then there is auto insurance, other policies. Beyond this an umbrella should cover net worth, and then a buffer for legal expenses.

I'm not familiar with trusts, how can they be used for asset protection? And how do others decide on how much umbrella coverage to get?

Why relate the umbrella coverage to net worth? The insurance policy doesn't cover your assets, it just covers liability up to the policy limit. Why not buy a $5 million policy, even if your assets are only $2 million. Or a $1 million policy? Shouldn't your policy be sized for the level of liability you feel you might need and for the level of protection you feel comfortable with?

Why relate the umbrella coverage to net worth? The insurance policy doesn't cover your assets, it just covers liability up to the policy limit. Why not buy a $5 million policy, even if your assets are only $2 million. Or a $1 million policy? Shouldn't your policy be sized for the level of liability you feel you might need and for the level of protection you feel comfortable with?

Most references I have seen regarding how much insurance to buy is a function of NW, I suspect because you want to protect your net assets in a suit.

The reality is that you are not only buying protection, but also the best lawyers the umbrella carrier can buy to avoid paying a $2m+ claim.

My plan is to get an umbrella policy on net worth minus already covered assets, with a buffer. Eg if there is a homestead exemption in your state, it will cover a certain amount, and then there is auto insurance, other policies. Beyond this an umbrella should cover net worth, and then a buffer for legal expenses.

Although people often cite figuring like this as a guideline for sizing umbrella policies, this is not how it works. A $1 million umbrella policy does not protect your $1 million net worth and then pay any claims to protect your $1 million. The policy will pay claims up to the limit, then you are responsible for any overage. So your $1 million policy and $1 million net worth would both be used to pay a $2 million claim, leaving you with zero. Likewise claims over $2 million will wipe out your policy and your net worth and leave you owing any overage.

To size an umbrella policy, the relevant number is largest claim you want to protect against, not networth. Now people with very low net worth may not bother with umbrella protection because they are poor targets for litigation, there just isn't much there to win. But that doesn't mean as net worth grows you need a corresponding size umbrella policy. It means once your networth is substantial enough to be worth bothering to sue you, you need umbrella coverage to protect against the largest claim you could reasonably face.

We have the maximum amount of insurance plus an umbrella. Assets are also somewhat protected in 401ks and IRAs. But none of this protects us as much as living a fairly clean life and being fairly unlikely to punch someone in the face.

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